Quitting Job & Cashing In 401k

Asked Aug 31, 2007, 04:31 PM
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11 Answers

Here's my situation:
I'm 40 years old, I have roughly $140,000 in my 401K including $16,000 left to pay on a 401k loan.
I have an oppourtunity to open my own business and want to quit my job of 16 years and cash in my 401k to use as capitol.
How Much would I lose in penalties and interest? 30-35%?

I'm opening a bike shop. I have everything worked out, business plan, minimum starting inventory, location etc. I just need the $$ to get it going. I have a friend who currently owns a shop who is helping me set everything up.
Retirement? - this will be my retirement, doing what I love, not what I have to.

I guess starting and working for yourself is the american dream, and I guess you have looked at all the costs and have operating expenses and living expenses planned for at least a year, most businesses make little or no profit the first year plus we are getting into winter which I have to guess is not the prime bike time of year.

But then many people follow their dreams, If you go into this understanding in 2 to 3 years you may be broke, no savings, no retirement.

You are asking from a money sense, this is a bad idea, most small business fail and most end up losing everything, their home, business and end up bankrupt. So if you ask, we have to say don't do it, but in the end it is your choice

Selling bikes is only part of the business, most of the money made in bike shops is through service. But Bikes aren't the only thing found in a shop, you need to have an income during the winter also and most shops do snowboards, X-country skis and accessories. I'm going to sell high-end skateboards as well. Once the business starts to show a profit I plan on having some sort of IRA or other retirement fund. But really, I am planning on doing this until they put me in a box.
There is never a big demand for bikes, bike shops aren't money makers by any stretch of the imagination. But if you love what you do and don't really care about driving a gas guzzling SUV or an overpriced BMW, then why not do it if it's what makes you happy and it eventually makes a small profit.

I've always done what I love, but the money didn't follow. I hope you continue paying into SS so you will have that at least. And I hope you are resilient, since Life doesn't happen the way you plan it to.

The only part about this that really bothers me is that you are throwing away money. Between penalties and taxes, you are throwing away at least $40K, maybe more. Think about how long it will take to make that back. I understand the part about following your dream, but cashing out a 401K should be a last resort.

I know the ramifications of cashing out a 401K early, can be costly. However, I don't know what other options I have at this point. Here is my scenario, please feel free to offer any helpful advice.
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